Economic Survey Vol. 1

Economy - Economic Survey Vol. 1

Chapter-1 Wealth Creation: The Invisible Hand Supported by the Hand of Trust

• For more than three-fourths of known economic history, India has been the dominant economic power globally. Such dominance manifested by design. During much of India’s economic dominance, the economy relied on the invisible hand of the market for wealth creation with the support of the hand of trust. Specifically, the invisible hand of markets, as reflected in openness in economic transactions, was combined with the hand of trust by appealing to ethical and philosophical dimensions. As far as half-a-century back, Spengler (1971) reflected this fact by asserting that Kautilya’s Arthashastra postulates the role of prices in an economy.
• The Survey shows that contemporary evidence following the liberalization of the Indian economy support the economic model advocated in our traditional thinking. The exponential rise in India’s GDP and GDP per capita post liberalisation coincides with wealth generation in the stock market. Similarly, the evidence across various sectors of the economy illustrates the enormous benefits that accrue from enabling the invisible hand of the market. Indeed, the Survey shows clearly that sectors that were liberalized grew significantly faster than those that remain closed. The events in the financial sector during 2011-13 and the consequences that followed from the same illustrate the second pillar - the need for the hand of trust to support the invisible hand. In fact, following the Global Financial Crisis, an emerging branch of the economics literature now recognises the need for the hand of trust to complement the invisible hand.
• The Survey posits that India’s aspiration to become a $5 trillion economy depends critically on strengthening the invisible hand of markets together with the hand of trust that can support markets. The invisible hand needs to be strengthened by promoting pro-business policies to (i) provide equal opportunities for new entrants, enable fair competition and ease doing business, (ii) eliminate policies that undermine markets through government intervention even where it is not necessary, (iii) enable trade for job creation, and (iv) efficiently scale up the banking sector to be proportionate to the size of the Indian economy. Introducing the idea of “trust as a public good that gets enhanced with greater use”, the Survey suggests that policies must empower transparency and effective enforcement using data and technology to enhance this public good.

Chapter-2 Entrepreneurship and Wealth Creation at the Grassroots

• The “Startup India” campaign of the Government of India recognizes entrepreneurship as an increasingly important strategy to fuel productivity growth and wealth creation in India. Given this initiative, this chapter examines the content and drivers of entrepreneurial activity at the bottom of the administrative pyramid – over 500 districts in India.
• The analysis employs comprehensive data on new firm creation in the formal sector across all these districts from the Ministry of Corporate Affairs (MCA)-21 databases.
  • First, using the World Bank’s Data on Entrepreneurship, this chapter confirms that India ranks third in number of new firms created. The same data shows that new firm creation has gone up dramatically in India since 2014. While the number of new firms in the formal sector grew at a compounded annual growth rate of 3.8 per cent from 2006-2014, the growth rate from 2014 to 2018 has been 12.2 per cent. As a result, from about 70,000 new firms created in 2014, the number has grown by about 80 per cent to about 1, 24,000 new firms in 2018.
  • Second, reflecting India’s new economic structure, i.e. comparative advantage in the Services sector, new firm creation in services is significantly higher than that in manufacturing, infrastructure or agriculture.
  • Third, grassroots entrepreneurship is not just driven by necessity as a 10 percent increase in registration of new firms in a district yields a 1.8 percent increase in GDDP. Thus, entrepreneurship at the bottom of the administrative pyramid – a district – has a significant impact on wealth creation at the grassroot level. This impact of entrepreneurial activity on GDDP is maximal for the manufacturing and services sectors.
  • Fourth, birth of new firms is very heterogeneous across Indian districts and across sectors. Moreover, it is dispersed across India and is not restricted to just a few cities.
  • Fifth, literacy and education in the district foster local entrepreneurship significantly. For instance, the eastern part of India has the lowest literacy rate of about 59.6 per cent according to the census of 2011. This is also the region in which new firm formation is the lowest. In fact, the impact of literacy on entrepreneurship is most pronounced when it is above 70 per cent.
  • Sixth, the level of local education and the quality of physical infrastructure in the district.
• Finally, policies that enable ease of doing business and flexible labour regulation enable new firm creation, especially in the manufacturing sector. As the manufacturing sector has the greatest potential to create jobs for our youth, enhancing ease of doing business and implementing flexible labour laws can create the maximum jobs in districts and thereby in the states.
• Literacy, education and physical infrastructure are the other policy levers that district and state administrations must focus on foster entrepreneurship.

Chapter- 3 Pro-Business versus Pro-Crony

• India’s aspiration to become a $5 trillion economy depends critically on promoting “probusiness” policy that unleashes the power of competitive markets to generate wealth, on the one hand, and weaning away from “pro-crony” policy that may favour specific private interests, especially powerful incumbents, on the other hand. Economic events since 1991 provide powerful evidence supporting this crucial distinction.
• Viewed from the lens of the Stock market, which captures the pulse of any economy, creative destruction has increased significantly after reform. Before liberalization, a Sensex firm expected to stay in it for 60 years, which decreased to only 12 years after liberalization. Every five years, one-third of Sensex firms are churned out, reflecting the continuous influx of new firms, products and technologies into the economy.
• Despite impressive progress in enabling competitive markets, pro-crony policies have destroyed value in the economy. For example, an equity index of connected firms significantly outperformed the market by 7 per cent a year from 2007 to 2010, reflecting abnormal profits extracted at common citizens’ expense. In contrast, the index underperforms the market by 7.5 per cent from 2011, reflecting the inefficiency and value destruction inherent in such firms.
• Pro-crony policies as reflected in discretionary allocation of natural resources till 2011 led to rent-seeking by beneficiaries while competitive allocation of the same resources post 2014 have put an end to such rent extraction. Similarly crony lending that led to willful default, wherein promoters have collectively siphoned off wealth from banks, led to losses that dwarf subsidies directed towards rural development.

Chapter-4 Undermining Markets: When Government Intervention Hurts More Than It Helps

• Government intervention, sometimes though well intended, often ends up undermining the ability of the markets to support wealth creation and leads to outcomes opposite to those intended. This chapter analyses four examples of anachronistic government interventions, though many more abound.
  • First, frequent and unpredictable imposition of blanket stock limits on commodities under Essential Commodities Act (ECA) neither brings down prices nor reduces price volatility. However, such intervention does enable opportunities for rent-seeking and harassment. For instance, imposition of stock limits on dal in 2006-Q3, sugar in 2009- Q1 and onions in September 2019 spiked up the volatility of the wholesale and retail prices instead of smoothening them – in contrast to its objective of easing pressure on prices. Around 76000 raids under ECA were conducted during 2019. Assuming a minimum of 5 persons involved in a raid, considerable administrative effort goes into enforcement of ECA. As the conviction rate, however, is abysmally low and raids have no impact on prices, the ECA only seems to enable rent-seeking and harassment. The Act is anachronistic as it was passed in 1955 in an India worried about famines and shortages; it is irrelevant in today's India and must be jettisoned.
  • Second, the regulation of prices of drugs through the DPCO 2013, has led to increase in the price of a regulated pharmaceutical drug vis-à-vis that of a similar drug whose price is not regulated. Our analysis shows that the increase in prices was witnessed for more expensive formulations than for cheaper ones and those sold in hospitals rather than retail shops, reinforcing that the outcome is opposite to what DPCO aims to do - making drugs affordable. The evidence across different commodities (pulses, sugar, onions and drugs) - not just onions or sugar where cartelisation is often suspected - and episodes spanning different time periods (2006-19) suggests that the ineffectiveness of ECA stems from unnecessary government intervention that undermines markets.
  • Third, government policies in the foodgrain markets has led to the emergence of Government as the largest procurer and hoarder of foodgrains – adversely affecting competition in these markets. This has led to overflowing of buffer stocks with FCI, burgeoning food subsidy burden, divergence between demand and supply of cereals and acted as a disincentive towards crop diversification.
  • Fourth, analysis of debt waivers given by States/Centre shows that full waiver beneficiaries consume less, save less, invest less and are less productive after the waiver when compared to the partial beneficiaries. The share of formal credit decreases for full beneficiaries when compared to partial beneficiaries, thereby defeating the very purpose of the debt waiver provided to farmers.
• The Ministry of Consumer Affairs and its related arms must examine whether the anachronistic ECA, which was passed in 1955 in an India worried about famines and shortages, is relevant in today’s India. Around 76000 raids under ECA were conducted during 2019. Assuming a minimum of 5 persons involved in a raid, considerable administrative effort goes into enforcement of ECA. As the conviction rate, however, is abysmally low and raids have no impact on prices, the ECA only seems to enable rent-seeking and harassment. The Survey provides clear evidence that the case for jettisoning this anachronistic legislation is strong.
• The regulation of prices of drugs, through the DPCO 2013, has led to increase in the price of the regulated pharmaceutical drug vis-à-vis that of a similar drug whose price is not regulated. The increase in prices is greater for more expensive formulations than for cheaper ones and for those sold in hospitals rather than retail shops. These findings reinforce that the outcome is opposite to what DPCO aims to do - making drugs affordable.
• As the Government is a huge buyer of drugs through its various arms such as CGHS, Defense, Railways etc., the Government can intervene more effectively to provide affordable drugs by combining all its purchases and thereby exercise its bargaining power. The Ministry of Health and Family Welfare as well as its related arms must imbibe the evidence to evolve non-distortionary mechanisms that utilise Government’s bargaining power in a transparent manner.
• Government policies in the foodgrain markets has led to the emergence of Government as the largest procurer and hoarder of rice and wheat crowding out. This has led to burgeoning food subsidy burden and inefficiencies in the markets, which is affecting the long run growth of agricultural sector. The foodgrains policy needs to be dynamic and allow switching from physical handling and distribution of foodgrains to cash transfers/ food coupons/smart cards.
• Analysis of debt waivers given by States/Centre shows that full waiver beneficiaries consume less, save less, invest less and are less productive after the waiver when compared to the partial beneficiaries. Debt waivers disrupt the credit culture and end up reducing the formal credit flow to the very same farmers, thereby defeating the very purpose of the debt waiver provided to farmers.
• This chapter makes the case that each department and ministry in the Government must systematically examine areas where the Government needlessly intervenes and undermines markets. Note that the chapter does not argue that there should be no Government intervention. Instead, interventions that were apt in a different economic setting may have lost their relevance in a transformed economy. Eliminating such instances will enable competitive markets and thereby spur investments and economic growth.

Chapter- 5 Creating Jobs and Growth by Specializing to Exports in Network Products

• The current environment for international trade presents India an unprecedented opportunity to chart a China-like, labor-intensive, export trajectory and thereby create unparalleled job opportunities for our burgeoning youth.
• By integrating “Assemble in India for the world” into Make in India, India can create 4 crore well-paid jobs by 2025 and 8 crore by 2030. Exports of network products, which is expected to equal $7 trillion worldwide in 2025, can contribute a quarter of the increase in value-added for the $5 trillion economy by 2025. This chapter, therefore, articulates a clear-headed strategy to grab this opportunity. China’s remarkable export performance vis-à-vis India is driven primarily by deliberate specialization at large scale in labour-intensive activities, especially “network products”, where production occurs across Global Value Chains (GVCs) operated by multi-national corporations. Laser-like focus must be placed on enabling assembling operations at mammoth scale in network products. As an India that harbours misplaced insecurity on the trade front is unlikely to grab this opportunity, our trade policy must be an enabler. In fact, contrary to recent fears, careful analysis that controls for all confounding factors shows that India has gained from trade agreements: a 0.7 per cent increase per year in trade surplus with partner countries for manufactured products and 2.3 per cent per year for total merchandise.
• The current environment for international trade presents India an unprecedented opportunity to chart a China-like, labour-intensive, export trajectory and thereby create unparalleled job opportunities for our burgeoning youth.
• By integrating “Assemble in India for the world” into Make in India, India can raise its export market share to about 3.5 per cent by 2025 and 6 per cent by 2030. This will create 4 crore well-paid jobs by 2025 and 8 crore by 2030.
• One-quarter of the increase in value added required for making India a $5 trillion economy by 2025 can come from exports of network products.
• This chapter, therefore, articulates a clear-headed strategy to grab this opportunity.
• China’s remarkable export performance vis-à-vis India is driven primarily by deliberate specialization at large scale in labour-intensive sectors, especially “network products”, where production occurs across Global Value Chains (GVCs) operated by multi-national corporations. China used this specialised strategy to export primarily to markets in rich countries. Similarly, India must place laser-like focus on enabling assembling operations at mammoth scale in network products.
• As an India that harbours misplaced insecurity on the trade front is unlikely to grab this opportunity, our trade policy must be an enabler. When the impact of India’s trade agreements on overall trade balance is made by accounting for all confounding factors, India’s exports have increased by 13.4 per cent for manufactured products and 10.9 per cent for total merchandise while imports increased by 12.7 per cent for manufactured products and 8.6 per cent for total merchandise. Thus, India has clearly gained 0.7 per cent increase in trade surplus per year for manufactured products and 2.3 per cent per year for total merchandise.

Chapter- 6 Targeting Ease of Doing Business in India

• Ease of doing business is key to entrepreneurship, innovation and wealth creation. India has risen significantly in the World Bank’s Doing Business rankings in recent years, but there are categories where it lags behind – Starting a Business, Registering Property, Paying Taxes and Enforcing Contracts.
• This chapter focuses on these parameters and compares India’s performance with both its peers and with the best-in-class. For example, registering property in Delhi and Mumbai takes 49 and 68 days respectively, while it takes 9 days in China and 3.5 days in New Zealand.
• These performance matrices provide a measure of the scope for improvement. The chapter then explores the density of laws, rules and other statutory compliance requirements faced by a manufacturing or services business (specifically the restaurants segment).
• Export competitiveness depends not only on the cost of production but also on the efficiency of logistics.
• A series of case studies are used to analyse the time taken at each stage for specific merchandise items to travel from factory gate to the warehouse of the foreign customer. For instance, a study found that an apparels consignment going from Delhi to Maine (U.S.) takes roughly 41 days, but 19 of these are spent within India due to delays in transportation, customs clearance, ground handling and loading at sea-ports.
• A study of carpets exports from Uttar Pradesh to the United States also showed similar results. The process flow for imports, ironically, is more efficient than that for exports! In contrast, however, the imports and exports of electronics through Bengaluru airport was found to be world class. The processes of Indian airports should be adapted and replicated in sea-ports.
• India has jumped up 79 positions in World Bank’s Doing Business rankings, improving from 142 in 2014 to 63 in 2019. However, it continues to trail in parameters such as Ease of Starting Business (rank 136), Registering Property (rank 154), Paying Taxes (rank 115), and Enforcing Contracts (rank 163).
• Enforcing a contract in India takes on average 1,445 days in India compared to just 216 days in New Zealand, and 496 days in China. Paying taxes takes up more than 250 hours in India compared to 140 hours in New Zealand, 138 in China and 191 in Indonesia. These parameters provide a measure of the scope for improvement.
• Setting up and operating a services or manufacturing business in India faces a maze of laws, rules and regulations. Many of these are local requirements, such as burdensome documentation for police clearance to open a restaurant. This must be cleaned up and rationalized one segment at a time.
• Case studies of merchandise exports found that logistics is inordinately inefficient in Indian sea-ports. The process flow for imports, ironically, is more efficient than that for exports. Although one needs to be careful to directly generalize from specific case studies, it is clear that customs clearance, ground handling and loading in sea ports take days for what can be done in hours. A case study of electronics exports and imports through Bengaluru airport illustrates how Indian logistical processes can be world class.
• It must be noted that the turnaround time of ships in India has been on a continuous decline, almost halving from 4.67 days in 2010-11 to 2.48 days in 2018-19. This shows that achieving significant efficiency gains in the case of sea ports is possible. Although, a full case study of Chennai port was not done, partial data suggests that its processes are smoother than those of the ports discussed above.
• The streamlining of the logistics process at sea-ports requires close coordination between the Logistics division of the Ministry of Commerce and Industry, the Central Board of Indirect Taxes and Customs, Ministry of Shipping and the different port authorities. The simplification of the Ease of Doing Business landscape of individual sectors such as tourism or manufacturing, however, requires a more targeted approach that maps out the regulatory and process bottlenecks for each segment. Once the process map has been done, the correction can be done at the appropriate level of government - central, state or municipal.

Chapter-7 Golden Jubilee of Bank Nationalization: Taking Stock

• In 2019, India completed the 50th anniversary of bank nationalization. It is, therefore, apt to celebrate the accomplishments of the 3, 89,956 officers, 2, 95,380 clerks, and 1, 21,647 sub-staff who work in Public Sector Banks (PSBs). At the same time, an objective assessment of PSBs is apposite.
• Since 1969, India has grown significantly to become the 5th largest economy in the world. Yet, India’s banking sector is disproportionately under-developed given the size of its economy. For instance, India has only one bank in the global top 100 – same as countries that are a fraction of its size: Finland (about 1/11th), Denmark (1/8th), Norway (1/7th), Austria (about 1/7th), and Belgium (about 1/6th). Countries like Sweden (1/6th) and Singapore (1/8th) have thrice the number of global banks.
• A large economy needs an efficient banking sector to support its growth. Historically, in the last 50 years, the top-five economies have always been ably supported by their banks. Should India’s banks play a role proportionate to its economic size, India should have six banks in the top 100. As PSBs account for 70 per cent of the market share in Indian banking, the onus of supporting the Indian economy and fostering its economic development falls on them. Yet, on every performance parameter, PSBs are inefficient compared to their peer groups. Previously, the Narasimhan Committee (1991, 1997), Rajan Committee (2007) and P J Nayak Committee (2014) have provided several suggestions to enhance the efficiency of PSBs. The survey suggests use of FinTech (Financial Technology) across all banking functions and employee stock ownership across all levels to enhance efficiencies in PSBs. These will make PSBs more efficient so that they are able to adeptly support the nation in its march towards being a $5 trillion economy. All these recommendations need to be seriously considered and a definite, timebound plan of action drawn up. With the cleaning up of the banking system and the necessary legal framework such as the Insolvency and Bankruptcy Code (IBC), the banking system must focus on scaling up efficiently to support the economy.
• In 2019, every rupee of taxpayer money invested in PSBs, on average, lost 23 paise. In contrast, every rupee of investor money invested NPBs on average gained 9.6 paise. Also, credit growth in PSBs has been much lower than NPBs for the last several years.
• To incentivize employees and align their interests with that of all shareholders of banks, bank employees should be given stakes through an employee stock ownership plan (ESOP) together with proportionate representation on boards proportionate to the blocks held by employees.
• A GSTN type of entity should be setup to enable the use of big data, artificial intelligence and machine learning in credit decisions, especially those pertaining to large borrowers. As Government is the owner of all the PSBs, Government has the right to use the data that PSBs generate during their business. Therefore, the Government as the promoter must set up this entity that will aggregate data from all PSBs to enable decision making using big data techniques.
• The patterns in default that such powerful techniques can unearth are far beyond the capacity of any unscrupulous promoter to escape. Therefore, such investments are critical to ensuring better screening and monitoring of borrowers, especially the large ones.

Chapter- 8 Financial Fragility in the NBFC Sector

• Following payment defaults by subsidiaries of Infrastructure Leasing and Financing Services and by Dewan Housing Finance Limited, investors in Liquid Debt Mutual Funds (LDMFs) ran collectively to redeem their investments. In fact, the defaults triggered panic across the entire gamut of NBFC-financiers, thereby causing a funding (liquidity) crisis in the NBFC sector.
• This chapter highlights that problems faced by the NBFCs stemmed from their over-dependence on short term wholesale funding from the Liquid Debt Mutual Funds. While such reliance works well in good times, it generates significant risk to NBFCs from the inability to roll over the short-term funding during times of stress.
• An asset-side shock not only exacerbates the Asset Liability Management (ALM) problem but also makes investors in LDMFs jittery and thereby leads to a redemption pressure that is akin to a “bank run.” This run on LDMFs then precipitates the refinancing (rollover) risk for NBFCs and further exacerbates the initial problems caused on the asset side. A dynamic health index (Health Score) is constructed that captures these risks and can be used as an early warning system to anticipate liquidity crisis in an NBFC. Policy makers can use this tool to monitor, regulate and avert financial fragility in the NBFC sector.
• Motivated by the current liquidity crunch the NBFC sector, this chapter investigates the key drivers of Rollover Risk of the shadow banking system in India.
• The key drivers of Rollover Risk are: ALM Risk, Interconnectedness Risk and Financial and Operating Resilience of an NBFC.
• The over-dependence on short-term wholesale funding exacerbates Rollover Risk.
• Using a novel scoring methodology, Rollover Risk is quantified for a sample of HFCs and Retail-NBFCs (which are representative of their respective sectors) and thereby compute a diagnostic (Health Score).
• The Health Score for the HFC sector exhibited a declining trend post 2014. By the end of FY2019, the health of the overall sector had worsened considerably.
• The Health Score of the Retail-NBFC sector was consistently below par for the period 2014 till 2019.
• Larger Retail-NBFCs had higher Health Scores but among medium and small Retail NBFCs, the medium size ones had a lower Health Score for the entire period from March 2014 till March 2019.
• The above findings suggest that the Health Score provides an early warning signal of impending liquidity problems.
• The analysis find significant evidence that equity markets react favourably to increase in Health Score of individual HFCs and Retail-NBFCs, thereby confirming the validity of Health Score as an early warning signal.

Chapter-9 Privatization and Wealth Creation

• The recent approval of strategic disinvestment in Bharat Petroleum Corporation Limited (BPCL) led to an increase in value of shareholders’ equity of BPCL by Rs. 33,000 crore when compared to its peer Hindustan Petroleum Corporation Limited (HPCL)! This reflects an increase in the overall value from anticipated gains from consequent improvements in the efficiency of BPCL when compared to HPCL which will continue to be under Government control.
• This chapter, therefore, examines the realized efficiency gains from privatization in the Indian context. It analyses the before-after performance of 11 CPSEs that had undergone strategic disinvestment from 1999-2000 to 2003-04. To enable a careful comparison using a difference in-difference methodology, these CPSEs are compared with their peers in the same industry group.
• The analysis shows that these privatized CPSEs, on an average, perform better post privatization than their peers in terms of their net worth, net profit, return on assets (ROA), return on equity (RoE), gross revenue, net profit margin, sales growth and gross profit per employee. More importantly, the ROA and net profit margin turned around from negative to positive surpassing that of the peer firms, which indicates that privatized CPSEs have been able to generate more wealth from the same resources.
• This improved performance holds true for each CPSE taken individually too. The analysis clearly affirms that privatization unlocks the potential of CPSEs to create wealth. The chapter, therefore, bolsters the case for aggressive disinvestment of CPSEs.

Chapter- 10  Is India’s GDP Growth Overstated? No!

• As investors deciding to invest in an economy care for the country’s GDP growth, uncertainty about its magnitude can affect investment. Therefore, the recent debate about India’s GDP growth rates following the revision in India’s GDP estimation methodology in 2011 assumes significance, especially given the recent slowdown in the growth rate.
• Using careful statistical and econometric analysis that does justice to the importance of this issue, this chapter finds no evidence of mis-estimation of India’s GDP growth. The chapter starts from the basic premise that countries differ among each other in various observed and unobserved ways. Therefore, cross-country comparisons are fraught with risks of incorrect inference due to various confounding factors that stem from such inherent differences. As a result, cross-country analysis has to be carefully undertaken so that correlation is distinguished from causality.
• The models that incorrectly over-estimate GDP growth by 2.77 per cent for India post-2011 also mis-estimate GDP growth over the same time period for 51 other countries out of 95 countries in the sample. The magnitude of mis-estimation in the incorrectly specified model is anywhere between +4 per cent to -4.6 per cent, including UK by +1.6 per cent, Germany by +1.0 per cent, Singapore by -2.3 per cent, South Africa by -1.2 per cent and Belgium by -1.3 per cent. Given the lower growth rates for UK and Germany compared to India, the mis-estimation in percentage terms in the incorrectly specified model is much larger for UK (76 per cent) and Germany (71 per cent) than for India (40 per cent).
• However, when the models are estimated correctly by accounting for all unobserved differences among countries as well as the differential trends in GDP growth across countries, GDP growth for most of these 52 countries (including India) is neither over- or underestimated. In sum, concerns of over-estimation of India’s GDP are unfounded. The larger point made by this chapter needs to be understood by synergistically viewing its findings with the micro-level evidence in Chapter 2, which examines new firm creation in the formal sector across 504 districts in India. Two observations are critical.
  • The granular evidence shows that a 10 per cent increase in new firm creation increases district-level GDP growth by 1.8 per cent.
  • As the pace of new firm creation in the formal sector accelerated significantly more after 2014, the resultant impact on district-level growth.
• GDP growth is a critical variable for decision-making by investors as well as policymakers. Therefore, the recent debate about whether India’s GDP is correctly estimated following the revision in estimation methodology in 2011 is extremely significant.
• As countries differ in several observed and unobserved ways, cross-country comparisons have to be undertaken with care to separate out the effect of other confounding factors and isolate the effect of the methodology revision alone on GDP growth estimates.
• The models that incorrectly over-estimate GDP growth by 2.7 per cent for India post-2011 also mis-estimate GDP growth over the same time period for 51 other countries out of 95 countries in the sample. Several advanced economies such as UK, Germany and Singapore turn out to have their GDPs misestimated when the econometric model is incompletely specified.
• Correctly specified models that account for all unobserved differences among countries as well as differential trends in GDP growth across countries fail to find any misestimation of growth in India or other countries.
• Concerns of a misestimated Indian GDP are unsubstantiated by the data and are thus unfounded.

Chapter- 11 Thalinomics: The Economics of a Plate of Food in India

• Though economics affects the common lives of people in tangible ways, this fact often remains unnoticed. What better way to make economics relate to the common person than something that s (he) encounters every day – a plate of food? Enter “Thalinomics: The economics of a plate of food in India” – an attempt to quantify what a common person pays for a Thali across India.
• Has a Thali become more or less affordable? Has inflation in the price of a Thali increased or decreased? Is the inflation the same for a vegetarian Thali as for a non-vegetarian one? Is the inflation in the price of a Thali different across different states and regions in India? Which components account for the changes in the price of a Thali – the cereals, vegetables, pulses or the cost of fuel required for its preparation? Questions that can engage a dinner-table conversation in Lutyens Delhi or in a road-side Dhaba in the hinterland can now be answered and positions taken on either side of a “healthy” debate.
• Using the dietary guidelines for Indians (NIN, 2011), the price of Thalis are constructed. Price data from the Consumer Price Index for Industrial Workers for around 80 centres in 25 States/UTs from April 2006 to October 2019 is used.
• Both across India and the four regions – North, South, East and West – it is found that the absolute prices of a vegetarian Thali have decreased significantly since 2015-16 though the price has increased in 2019. As a result, an average household of five individuals that eats two vegetarian Thalis a day gained around Rs. 10887 on average per year while a non-vegetarian household gained Rs. 11787, on average, per year. Using the annual earnings of an average industrial worker, it is found that affordability of vegetarian Thalis improved 29 per cent from 2006-07 to 2019-20 while that for non-vegetarian Thalis improved by 18 per cent.
• 2015-16 can be considered as a year when there was a shift in the dynamics of Thali prices. Many reform measures were introduced since 2014-15 to enhance the productivity of the agricultural sector as well as efficiency and effectiveness of agricultural markets for better and more transparent price discovery.